danske bank group’s annual report 2001 management financial
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D A N S K E B A N K A N N U A L R E P O R T 2 0 01 3
DANSKE BANK GROUP’S ANNUAL REPORT 2001
4 MANAGEMENT
7 FINANCIAL HIGHLIGHTS
8 MANAGEMENT’S REPORT
10 Results
12 Balance sheet, solvency and equity
14 Outlook for 2002
16 Follow-up on the merger with RealDanmark
19 Danske Bank shares
23 Customer and public relations
25 Incentive programmes
27 Human resources
30 Information technology
34 Organisation and management
36 Composition of board of directors
38 Organisation
40 Retail Banking
40 Denmark
44 Norway
47 Sweden
48 Mortgage Finance
52 Wholesale Banking
55 Danske Securities
57 Investment Management
60 Life and Pensions
65 Earnings from investment portfolios
67 RISK AND CAPITAL MANAGEMENT
68 Raroc and Ava
72 Credit risk
77 Market risk
78 Operational risk
79 Insurance risk
ACCOUNTS
80 Signatures
81 Audit reports
82 Accounting policies
86 Annual accounts
117 Group undertakings and holdings
122 GROUP STRUCTURE
124 DIRECTORSHIPS
128 DANSKE BANK’S LOCATIONS
130 ADVISORY BOARD
4 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
BOARD OF DIRECTORS
Poul J. Svanholm / General Manager / Chairman
Jørgen Nue Møller / General Manager / Vice Chairman
Poul Christiansen / Master Carpenter
Henning Christophersen / Managing Director of Epsilon s.p.r.l.
Alf Duch-Pedersen / Chief Executive of Danisco A/S
Bent M. Hansen / General Manager
Hans Hansen / Farmer
Niels Eilschou Holm / Private Secretary to Her Majesty the Queen of Denmark
Peter Højland / Managing Director of Transmedica A/S
Eiv ind Kolding / Chief Financial Of f icer of A.P. Møller
Niels Chr. Nielsen / Professor of Economics, Ph.D.
Sten Scheibye / Chief Executive of Coloplast A/S
Majken Schultz / Professor of Organization, Ph.D.
Birgit Aagaard-Svendsen / Executive Vice President, CFO of J. Lauritzen A/S
Claus Vastrup ** / Professor of Economics, Ph.D.
Jens Elton Andersen * / Senior Account Manager
Jørgen Andersen * / Vice President
Peter Michaelsen * / Assistant Vice President
Henning Mikkelsen * / Assistant Vice President
Torben Pedersen * / Assistant Vice President
Per Alling Toubro *, *** / Manager
Verner Usbeck * / Assistant Vice President
Solveig Ørteby *, *** / Bank Assistant
* Elected by the Bank’s staf f
** Appointed by the Minister of Economic Af fairs
*** Elected in accordance with Article 15 (last paragraph) of the Articles of Association
for a period until January 29, 2002, when election for the staf f association was called.
Sit on the board as observers until the annual general meeting.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 5
EXECUTIVE BOARD
Peter Straarup / Chairman of the Executive Board
Kjeld Jørgensen / Deputy Chairman of the Executive Board
Jakob Brogaard / Deputy Chairman of the Executive Board
Sven Lystbæk
EXECUTIVE COMMITTEE
Peter Straarup / Chairman
Kjeld Jørgensen
Jakob Brogaard
Jeppe Christiansen
Jørgen Klejnstrup
Karsten Knudsen
Sven Lystbæk
Henrik Normann
Jesper Ovesen
6 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Just before the end of the year, three of the Group’s branches unveiled a new
interior design that is at once informal, elegant and directly in line with the
Group’s general design principles. New electronic functions give customers the
opportunity to stay up to date with the f inancial markets, and f ilm clips of fer a
little entertainment along the way.
Danske Bank Group
Our core values:
• Integrity - in business conduct and in dealings with the community at large
• Accessibility - electronic and physical – in business and communications
• Value creation - for shareholders, customers and employees
• Expertise - through high standards for quality and professionalism
• Commitment - to customers’ f inancial af fairs
Our f inancial targets:
• Competitive return
• Core (tier 1) capital ratio in the region of 6.5%
• Payout ratio of 40%
Danske Bank Group f inancial highlights
CORE EARNINGS AND NET PROFIT FOR THE YEAR (DKr m) 2001 2000* 1999 1998 1997
Net interest income, excluding earnings from investment portfolios 18,051 16,200 8,593 7,911 7,085Fee and commission income, net 6,265 6,490 3,749 2,984 2,443Trading income 1,597 1,630 967 366 -413Other core income 1,171 1,135 537 479 383Core insurance income 1,223 938 975 920 698
Total core income 28,307 26,393 14,821 12,660 10,196Operating expenses and depreciation 16,275 16,148 9,215 7,750 7,378
Core earnings before provisions 12,032 10,245 5,606 4,910 2,818Provisions for bad and doubtful debts 1,752 1,100 447 406 317
Core earnings 10,280 9,145 5,159 4,504 2,501Profit on sale of subsidiaries 240 83 703 - -Earnings from investment portfolios 870 2,461 459 738 2,133Merger costs - 2,721 - - -Adjustment of accounting policies and estimates - 265 - - -
Prof it on ordinary operations before tax 11,390 8,703 6,321 5,242 4,634Tax 2,677 2,399 1,293 1,292 429
Net prof it for the year 8,713 6,304 5,028 3,950 4,205
Of which minority interests - 57 43 -1 4
The division between core earnings and earnings from investment portfolios is based in part on estimates for 1997.
BALANCE SHEET HIGHLIGHTS AT DECEMBER 31 (DKr bn) 2001 2000 1999 1998 1997
Bank loans and advances 476 444 308 241 243Mortgage loans 448 420 73 62 48Bonds and shares 356 259 147 140 136Due to credit institutions and central banks 241 213 158 140 139Deposits 400 367 266 214 225Issued bonds 673 563 150 108 79Subordinated debt 32 30 21 17 18Shareholders' equity 57 51 30 30 28Total assets 1,539 1,363 701 593 555
RATIOS AND KEY FIGURES 2001 2000 1999 1998 1997
Net profit for the year per share, DKr 11.9 8.2 9.4 7.5 7.9Net profit for the year per share**, DKr - 11.0 - - -Net profit for the year as % of average shareholders' equity 16.0 11.5 16.4 13.7 15.7Net profit for the year as % of average shareholders' equity** - 15.4 - - -Core earnings as % of average shareholders' equity 18.9 16.8 17.0 15.6 9.4Cost/core income ratio, % 57.5 61.2 62.2 61.2 72.4Solvency ratio, % 10.3 9.6 11.0 10.4 10.2Core (tier 1) capital ratio, % 7.3 6.8 7.4 7.7 7.2Dividend per share, DKr 4.75 4.40 2.50 1.80 1.80Share price at December 31, DKr 135.1 141.8 80.9 85.7 91.4Book value per share, DKr 78.0 70.5 57.5 57.3 52.0Number of full-time employees at December 31:Danske Bank and consolidated subsidiaries 17,564 18,930 12,397 11,691 11,365Non-consolidated subsidiaries (insurance companies) 957 976 1,128 1,451 1,442
**) Pro forma. For the year 2000, the Danske Bank and RealDanmark groups have been consolidated on a pro forma basis. Inter-companyaccounts and differences in accounting principles have not been eliminated as they do not inf luence the Group's profit and equity. The coreearnings of RealDanmark have been adjusted on an estimated basis to the core earnings model so far used by Danske Bank.
**) Exclusive of merger costs.Ratios and key figures are calculated in accordance with the recommendations of the Danish Association of Financial Analysts. Financial highlights for 2000 and 2001 are stated in euros and dollars on page 116.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 7
8 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
2001 was another good year for the Danske Bank Group. Prof it improved
despite the economic slowdown. The Group returned 16.0% on equity, which
is considered satisfactory under the circumstances. The process of imple-
menting the merger between Danske Bank and RealDanmark went very
smoothly. Hence, the Group could reap the merger synergies at a faster rate
than had been expected. The staf f contributed greatly to these favourable
developments through their competent ef forts on both the business and
administrative fronts.
The improvement in prof it was broadly based. The Banking and Mortgage
Finance businesses raised prof itability in both retail and wholesale markets.
Prof itability at the Life and Pensions division was also satisfactory. On the
other hand, business areas that depend heavily on equity markets did not
achieve such strong results.
For shareholders, an investment in Danske Bank’s shares yielded a negative
return of 1.7%, including dividend payments of DKr4.40 per share. However,
relative to the return on an investment in a group of peer European banks,
the return on Danske Bank’s shares must be considered competitive. Over a
f ive-year period, an investment in the Bank’s shares has returned 17.9% p.a.
The Danske Bank Group’s short- and long-term debt ratings were upgraded
in 2001 as a consequence of the Group’s f inancial strength. The rating
upgrades ref lected a number of years of prof it growth and ef fective man-
agement of risk and capital allocation. A contributing factor was the diversi-
f ication achieved through the merger. The bonds issued by the Group’s sub-
sidiary Realkredit Danmark were assigned a Triple A rating.
Management’s report
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 9
In 2001, the Group took measures that will strengthen its market position
in the years ahead. The integration of the computer systems of the merged
banking businesses was completed, and the work to bring all the Group’s
business activities on to the central computer systems platform proceeded
according to the ambitious schedule. After extensive systems integration in
Norway, the Group’s retail banking activities in Denmark, Norway and Sweden
now run on the common IT platform.
New incentive programmes were introduced for management and staf f in
2001. One of the aims is to link key employees more closely with the Group
and hence strengthen the foundation for long-term value creation. More-
over, the incentive programmes will further nourish the already-strong com-
mitment of the staf f.
Late in the year, the Group launched a new organisational structure. Bank-
ing activities are being amalgamated in each of the countries where Danske
Bank operates. The changes will help the banking business to focus even
more on of fering customers the best and most value-creating f inancial solu-
tions.
At the threshold of 2002, the depth and length of the world economic slow-
down are uncertain. The measures the Group has taken in previous years to
reinforce its market position, improve cost ef fectiveness, manage risk, and
optimise capital allocation have positioned it well to operate under both
favourable and less favourable conditions.
10 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Results
The Danske Bank Group recorded a net prof it of DKr8,713m for 2001. This
was an increase of DKr2,409m on the pro forma consolidated net prof it of
DKr6,304m for 2000. Prof it growth was driven in part by a satisfactory
12% rise in core earnings to DKr10,280m, while earnings from investment
portfolios declined to DKr870m. Net prof it per share was up by 45%.
Excluding the merger costs incurred in 2000, net profit per share rose by 8%.
Core income advanced by 7% to DKr28,307m. Net interest income was up
by 11% to DKr18,051m as a result of greater deposit and loan volumes and
good growth in income from trading in interest rate products. Interest mar-
gins were under pressure, mainly because of the general fall in interest rates.
Fee and commission earnings decreased to DKr6,265m from DKr6,490m
the year before, mostly as a result of generally lower turnover on equity
markets. The decrease was tempered by higher fee earnings from payment
services and mortgage ref inancing.
Operating expenses and depreciation remained, by and large, at the previ-
ous year’s level. Expense trends were satisfactory in v iew of the large num-
ber of extraordinary activities related to the merger between Danske Bank
and RealDanmark, including, not least of all, the harmonisation of IT systems.
The underlying trend in expenses declined as these activities were completed.
The improvement in core earnings was broadly based across the business
areas Retail Banking, Mortgage Finance, Life and Pensions, and Wholesale
Banking, where Danske Markets generated a very satisfactory result. Earn-
ings at Investment Management ref lected the decline in the equity markets
and hence could not be maintained at the same high level as the year before.
Danske Securities, the Group’s investment banking arm, posted an unsatis-
factory result, which was partly because unfavourable market conditions
inf luenced both equity sales and trading and corporate f inance activities.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 11
Management’s report
The charge for bad and doubtful debts rose to DKr1,752m from DKr1,100m
the year before. The slowdown in the world economy took its toll on cor-
porate customers’ earnings, whereas the f inancial conditions of personal
customers did not deteriorate noticeably. Provisioning levels were inf luenced
by a full provision taken on a large unsecured exposure to an international
airline company. The Group had only a modest exposure to other interna-
tional airline companies; the total unsecured exposure to this sector repre-
sented about a quarter of one per cent of total loans and guarantees at the
end of 2001.
Despite the rise in provisions, the charge for bad and doubtful debts
remained low relative to total loans and guarantees. The Group accelerated
the timing for writing of f doubtful debts in part or in whole, which was a
major factor behind the increase in realised loan losses. These develop-
ments should also be viewed in the light of a tax on banks’ loan loss
reserves that was introduced by the Danish parliament and took ef fect in
2001.
Core earnings grew, by and large, in line with the forecast set out in the
nine-month report for 2001.
The Group recorded a gain of DKr240m on the sale of subsidiaries. The
sales proceeds came mainly from companies that entered the Group
through the merger and were not considered to be core operations.
Earnings from investment portfolios were DKr870m, against DKr2,461m
the year before. This was satisfactory in the light of market trends. The
Group maintained the interest rate risk on its portfolios of f ixed rate instru-
ments in the region of DKr1,700m during the year, while reducing its equity
risk.
The Group’s tax charge, which totalled DKr2,677m for 2001, ref lected the
acceptance by the Norwegian tax authorities of the right of Danske Bank’s
subsidiary Fokus Bank to deduct accumulated tax losses representing a
total tax value of approximately DKr700m.
12 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
The return on equity improved from 15.4% in 2000 (adjusted for merger
costs) to 16.0% in 2001 in spite of the fact that the merger synergies were
not yet fully ref lected in the prof it and loss account.
Balance sheet, solvency and equity
The total assets of the consolidated Group were DKr1,539bn at the end of
2001, against DKr1,363bn a year earlier. Danica’s assets, which are not
consolidated in the Group accounts, amounted to DKr172bn. After eliminat-
ing inter-company accounts, the Group held total assets worth DKr1,701bn.
Bank loans and advances grew by DKr32bn to DKr476bn, while mortgage
loans rose by DKr28bn to DKr448bn. Deposits stood at DKr400bn at the
end of 2001. The shareholders’ equity of the Danske Bank Group increased
to DKr57.1bn from DKr50.9bn a year earlier.
The regulatory capital ratio — the solvency ratio — stood
at 10.3% at the end of 2001, of which 7.3 percentage
points came from core capital. The Group has lowered
its target for the core capital ratio to the region of 6.5%
in response to the changes in balance sheet composi-
tion brought about by the merger with RealDanmark. If
necessary, Danske Bank’s management will utilise its
authority to buy back shares in order to bring the core
capital ratio closer to the target. The intention is to buy
back DKr3.0bn worth of own shares (market value) in the second quarter of
2002.
Over the year, the Group repaid DKr5bn of supplementary capital, of which
debt with a 10.2% coupon repaid by Realkredit Danmark accounted for
DKr3bn. Debt repayments were ref inanced by three new debt issues. In
March, Danske Bank raised a nominal amount of €500m by the issue of
10-year notes. The issue was increased by €200m to a total of €700m in
December. In May, Danske Bank raised a nominal amount of £150m by the
issue of 13-year notes.
CAPITAL AND SOLVENCY (DKr m) 2001 2000
Core capital, less statutory deductions 55,177 50,338
Supplementary capital,
less statutory deductions 23,282 21,026
Total capital base,
less statutory deductions 78,459 71,364
Total weighted items 759,658 745,157
Solvency ratio, % 10.3 9.6
Core (tier 1) capital ratio, % 7.3 6.8
14 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Outlook for 2002
The year 2002 is likely to see sluggish growth in the world economy and low
interest rates. There is still uncertainty about the timing and strength of the
recovery, also on the Group’s principal markets in northern Europe. How-
ever, the economies of the region are generally well positioned and robust.
The Group expects net interest income to stagnate since interest margins
will be inf luenced by the fall in money market rates during 2001 and the
expected further decline in rates in the f irst half of 2002. Moreover, lending
growth may be restricted by customers’ focus on consolidation rather than
expansion.
Fee and commission earnings are expected to increase during 2002, but
much will depend on customer activity in the f inancial markets. Securities
and foreign exchange trading income and the related interest earnings are
expected to be somewhat lower than in 2001 because the level of activ ity
cannot be expected to be as high as in 2001. A likely decline in earnings
from trading in interest rate and foreign exchange products will probably not
be fully of fset by higher earnings from trading in the equity markets.
Core insurance income should improve from 2001, but will depend on mar-
ket conditions.
Against this background, the Danske Bank Group expects total core income
to be at roughly the same level as in 2001.
Expenses will fall in 2002. One of the reasons is the IT and staf f cost syner-
gies generated by the merger. Some of the cost savings achieved in 2001
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 15
Management’s report
will not have a full-year ef fect until the 2002 accounting year. The cost/core
income ratio is expected to fall from 57.5% in 2001 to less than 55% in
2002.
Provisioning levels will be inf luenced by overall economic conditions. The
economic slowdown will impair the prof itability and consolidation of many
businesses. Yet, given the Group’s expectations that the world economy will
stage a recovery not later than the second half of 2002, the charge for bad
and doubtful debts is expected to be at roughly the same level as in 2001. A
protracted economic downturn would increase the need for debt provisions.
Overall, the Group expects core earnings to grow in 2002, although at a
slower rate than in 2001.
As in previous years, earnings from investment portfolios will generally
depend on the level of securities prices at year-end. Danske Bank enters
2002 with a risk prof ile on its bond portfolio similar to that in 2001 and an
unchanged, small equity portfolio. However, market risk will be increased by
new regulations laid down by the Danish Financial Supervisory Authority
regarding the calculation of prof its in the Group’s insurance business. Owing
to the changes, the share of Danica’s return on investments attributable to
equity capital will be ref lected directly in Group earnings from investment
portfolios.
The Group expects its tax charge, including the tax on loan loss reserves, to
be 30% of pre-tax prof it.
16 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Follow-up on the merger with RealDanmark
When the Group announced the merger between Danske Bank and Real-
Danmark in October 2000, it outlined a number of merger milestones. The
Danske Bank Group met the targets it had set for 2001 and made even
faster progress than originally expected in a number of key areas. All em-
ployee groups contributed signif icantly to these very satisfactory develop-
ments through their dedicated and committed ef fort.
In August, BG Bank’s IT systems were converted to the central systems plat-
form. The integration of computer systems prepared the ground for a consid-
erable reduction in operating and development costs. It also laid the founda-
tion for further ef f iciency gains, for example, through branch integration.
Moreover, the central IT platform enhanced the Bank’s customer service
since it gave all banking customers in Denmark access to service in both
Danske Bank and BG Bank – that is, in a total of 553 branches.
The success in implementing the merger enabled the Group to generate
cost savings at a faster pace than forecast at the announcement of the
merger in October 2000. During 2001, the Danske Bank Group realised
merger synergies of about DKr1.8bn on an annualised basis. The Group
originally expected to achieve total annual cost savings of DKr2.2bn, and the
aim was to reach this annual level within three years. It is now expected that
annual savings will have reached the targeted level by the end of 2002. Sep-
arate annual cost savings of DKr0.7bn planned in Danske Bank and Real-
Danmark before the merger should also have been realised by the end of
2002. In addition, the Group is well positioned to control expenses ef fec-
tively; therefore a cost/core income ratio of 50% within a few years does
not seem unrealistic.
The main reason expenses are being reduced faster than expected is that
staf f reductions are ahead of schedule. By the end of 2001, the total staf f
— adjusted for the expansion at foreign units — had been cut by about 1,800
since the announcement of the merger. Moreover, Danske Bank had reached
agreements with another 500 employees that they would leave at a later
18 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
date. The Group maintains its original intention to cut staf f ing levels by
3,500 over a three-year period.
Branch closures followed the schedule, with 73 Danish branches being
closed in 2001. Additional branches are due to be closed in 2002.
The Group charged DKr1.7bn in merger costs against the original merger
provision in 2001, of which about DKr0.7bn was expended on staf f redun-
dancy schemes and DKr1.0bn on the decommissioning of computer systems
and other contractual liabilities. At year-end, there remained DKr0.7bn of
the original merger provision of DKr2.4bn.
As part of the merger activities, the Danske Bank Group sold BG Factoring,
BG Garanti Forsikringsselskab, and BG Bank International, Luxembourg, in
the f irst half of 2001. Danica, the Group’s life and pensions arm, bought BG
Pension from Topdanmark.
In 2001, Danske Bank and Post Denmark reviewed the collaboration agree-
ment between BG Bank and Post Denmark. The parties decided not to con-
tinue the agreement on the creation of joint branches. Instead, they entered
into an agreement that allows customers of Danske Bank and BG Bank to
carry out less complicated banking transactions at 1,050 post of f ices
across Denmark.
Also in 2001, Danske Bank fulf illed a number of commitments it had made
to the Competition Council when the Danish authorities reviewed the
merger proposal. The commitments to reduce the Bank’s stakes in the
Copenhagen Stock Exchange, the Danish Securities Centre, and the PBS
payment systems are not due to be fulf illed until later, and the Group is
working to meet these commitments too.
As announced at the merger, the Danske Bank Group operates two bank
brands in Denmark. This is because the Group wants to maintain multiple
prof iles on the market. In the autumn of 2001, the Group launched a cam-
paign to re-position BG Bank on the Danish banking market. BG Bank
adopted a new design that shares certain features with the Group design.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 19
Management’s report
Danske Bank shares
In 2001, the number of Danske Bank shares issued was reduced from
759,219,747 to 732,000,000 of DKr10 each. The main reason was that
the Bank had bought back shares in November 2000 following its decision
to reduce the core capital target.
DANSKE BANK SHARES 2001 2000* 2000
Average number of outstanding shares during the year 732,000,000 757,315,720 527,976,027
Number of outstanding shares at year-end 732,000,000 722,633,250 722,633,250
Number of issued shares at year-end 732,000,000 759,219,747 759,219,747
Number of shares entitled to dividends at end-March 2002 732,000,000 768,586,497 768,586,497
* Pro forma
The legal merger was approved by shareholders at the annual general meet-
ings of RealDanmark on March 26, 2001, and Danske Bank on March 27,
2001, with retroactive ef fect on January 1, 2001. The Minister of Economic
Af fairs approved the merger just after the general meetings. At the begin-
ning of April, RealDanmark’s shares were delisted from the Copenhagen
Stock Exchange. The RealDanmark shares that had not been exchanged for
Danske Bank shares in November 2000 carried a right to full div idends and
were exchanged for Danske Bank shares just after the merger resolution
was approved. This increased the share capital by DKr94m. The capital
reduction related to the DKr5bn share buy-back in 2000 was carried out in
June 2001, after the period of statutory notice had expired.
All shares carry the same rights, including voting rights.
They are quoted on the Copenhagen Stock Exchange
and are included in the KFX index of the 20 most liquid
stocks.
Market capitalisation was DKr98.9bn at the end of
2001.
DANSKE BANK SHARES 2001 2000
Total market value at year-end, DKr bn 98.9 107.7
Net profit per share, DKr 11.9 8.2
Dividends per share, DKr 4.75 4.40
Book value per share, DKr 78.0 70.5
Share price at December 31/book value per share 1.7 2.0
20 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
The volume of Danske Bank shares traded on the Copenhagen Stock
Exchange in 2001 is shown in the chart on the left.
The price of the shares was 141.8 at the end of December 2000 and
135.1 at the end of December 2001, a fall of 4.8%. Share price move-
ments during 2001 are also shown in the chart.
In 2001, shareholders had a total negative return of 1.7%, which includes
the capital loss of 4.8% and dividends equal to 3.1% of the market value
of the shares at the beginning of 2001.
In accordance with the Bank’s aim to maintain its payout ratio in the
region of 40%, the board of directors is proposing that the annual gen-
eral meeting approve dividends of DKr4.75 per Danske Bank share, or
a total of DKr3,477m, for 2001.
International rating agencies upgraded Danske Bank’s
long- and short-term debt ratings in 2001. Bonds
issued by Realkredit Danmark received a Triple A rating,
the highest possible rating.
Shareholders and annual general meeting
Three shareholders — Arbejdsmarkedets Tillægspension, Hillerød; Tank- og
Ruteskibe i Interessentskab, Copenhagen; and Foreningen RealDanmark,
Copenhagen — had notif ied Danske Bank by year-end that they each held
more than 5% of its share capital. The last-mentioned shareholder
announced in March 2001 that it had reduced its interest below 15% in
accordance with plans announced in the autumn of 2000. Danske Bank esti-
mates that about one-third of its share capital is held by foreign investors.
In 2000, information on developments at Danske Bank was relayed to
shareholders at the annual general meeting on March 27 and at 24 share-
holder meetings in major Danish towns that were attended by more than
16,500 shareholders.
0Jan 00 Jan 01
1,000
2,000
3,000
4,000
5,000
Monthly trading volume (DKr m) Price
Trading volume (market value)Price
80
180
160
140
120
100
RATINGS FOR DANSKE BANK GROUP Short-term Long-term
Moody’s P-1 Aa2
Standard & Poor’s A-1+ AA-
FITCH IBCA F1+ AA-
Bonds issued by Realkredit Danmark:Moody’s - Aaa
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 21
Management’s report
Notices to convene annual general meetings are published in the daily papers.
Moreover, information on the f inancial results and the place and date of an-
nual general meetings and other matters is provided to the Bank’s 270,000
registered shareholders through the shareholder magazine (available in
Danish only). Also, Danske Bank regularly encourages major shareholders to
attend the annual general meetings. The shareholders who attended the
2001 annual general meeting represented 33.5% of the share capital. The
board of directors had been granted authority to represent a limited number
of votes by way of proxy. In accordance with the Bank’s practice, these proxy
powers were ef fective only for that particular general meeting.
Over the year, the management of Danske Bank gave presentations at a
large number of meetings for investors and equity analysts in Denmark and
abroad. Moreover, Danske Bank conducted a range of investor relations
activities. The latest Group presentation for analysts can always be viewed
at www.danskebank.com.
Danske Bank’s f inancial results announcements for 2000, the f irst quarter
of 2001, the f irst half of 2001 and the f irst nine months of 2001, as well as
other stock exchange announcements, were available on the Bank’s web site
immediately after release. Also, shareholders could read about develop-
ments at Danske Bank in two issues of the shareholder magazine.
Important stock exchange annoucements in2001*)
January 10Danske Bank gathers estate agency business inone unit
February 22Danske Bank net profit of DKr4,716m for 2000
March 15Danske Bank raises new supplementary capitalin euros
March 27The annual general meeting of Danske Bank
April 27Danske Bank sells BG Factoring and BG Garanti
May 3Danske Bank net profit of DKr2,359m for thefirst quarter of 2001
May 14Danske Bank raises new supplementary capitalin pounds sterling
June 27Member of Danske Bank’s Executive BoardSøren Møller Nielsen retires
June 29Capital reduction at Danske Bank
August 16Danske Bank net profit of DKr4,355m for thefirst half of 2001
October 25Danske Bank nine-month net profit ofDKr6,984m
November 15Changes in organisational structure – newexecutive committee
November 27Danske Bank raises new supplementary capitalin euros
*) A full list of the year’s stock exchangeannouncements and press releases can beviewed at www.danskebank.com
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 23
Management’s report
Customer and public relations
It is the management’s objective that the Danske Bank Group build up good
long-term relationships with customers and the public in general. The
Group’s core values ref lect this objective and provide a foundation for
achieving it.
The Danske Bank Group aims to create a true picture of its results and
activities through its communications. The Group considers a constructive
interplay with printed and electronic media an important element in its busi-
ness activities and therefore strives for openness within the limits set by
banking law and the competitive environment.
Danske Bank seeks to keep stakeholders – including existing and potential
customers, shareholders, policymakers and media – abreast of develop-
ments within the Group. Through extensive accessibility and focused com-
munications, the Group strives to ensure that the general public understand
and accept its actions. Accessibility is ref lected in the aim that the Group’s
management team should respond quickly when approached by the media.
Moreover, customers and the public can follow the Group’s activ ities on its
web sites and through advertisements and a range of printed publications.
All employee groups are kept well informed of the Group’s objectives and
activities via the central internal information service, including, not least of
all, the Group Intranet.
24 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
A number of councils in Danske Bank, BG Bank, Realkredit Danmark, Fokus
Bank, and the Swedish branch network help the Group to forge links with
local communities. The councils consist of corporate and personal cus-
tomers of the individual brands.
The Group has demanding ambitions, also for its personal customer ser-
vices. Yet, owing to the large number of transactions carried out every day,
situations are bound to arise where customers are not satisf ied with the
service they get. Danske Bank treats all communications and complaints
from customers with great seriousness. Moreover, personal customers can
complain to the relevant national authority. Considering Danske Bank’s busi-
ness volume, the number of transactions that do not meet customers’
requirements is extremely low.
Danske Bank’s annual survey of customer satisfaction in the corporate
banking segment showed great satisfaction with the Bank. Corporate cus-
tomers had become even more satisf ied with Danske Bank and its products
than previously. Beginning in 2002, the Bank will also survey personal cus-
tomer satisfaction.
In the annual survey of banking customer satisfaction in Sweden, which is
conducted by an independent research institute, Danske Bank’s Swedish
branch network was rated the bank that had the most satisf ied customers
in both the corporate and personal banking segments.
Incentive programmes
In May 2001, Danske Bank launched a new incentive programme for the
management and staf f. The programme is based on value creation within
the Group and includes four elements: share options, conditional shares, an
employee share scheme and cash bonuses. Incentive payments ref lect indi-
vidual performance; they are also linked to the f inancial results of individual
business areas and other measures of value creation.
The share option and conditional share programmes will initially run for a
three-year period. The employee share scheme will also run for three years.
The share programmes will not dilute the outstanding stock since the
shares will be allocated from the Group’s portfolio of its own stock. Both the
share options and the Group’s own shares are recorded in the accounts in
accordance with general accounting provisions. Staf f bonuses and condi-
tional shares are provided for on a continuing basis, while any costs relating
to the employee share scheme are charged against year-end prof its.
The employee share programme is based on a model whereby the Group
allocates 5% of the continuous growth in core earnings above a qualifying
threshold of 10% annual core earnings growth, subject to a maximum per
annum allocation of DKr100m. Shares under the programme are of fered to
employees at a 50% discount. The amount allocated for 2001 was calcu-
lated on 2000 pro forma consolidated core earnings of DKr9,145m. Hence,
DKr12m was charged against prof it to provide for the scheme.
Danske Bank has decided to adjust the allocation criteria for the employee
share programme. For 2002 and 2003, the Group will also allocate 5% of
the continuous growth in core earnings up to a maximum of DKr100m a
year, but without imposing the 10% threshold.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 25
Management’s report
26 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
A broad group of managers and specialists participate in the conditional
share programme. The f irst shares under this programme will be allocated
as a portion of the bonus earned for 2001. The shares are held at the
employee’s risk and become available after three years if the employee is
still employed with the Danske Bank Group. For 2001, DKr50m was
expensed under “Staf f costs and administrative expenses” to provide for
conditional shares.
The senior executive management participates in the share option pro-
gramme. In 2001, the programme comprised about 50 executives, including
the executive board. The options carry a right to buy Danske Bank shares,
and they can be exercised between three and seven years after they are
allotted if the holders are still employed with the Group. The strike price of the
options is determined on the basis of the average price of Danske Bank
shares for 20 stock exchange days after the release of the annual report
plus 10%. The intention is to extend the programme in 2002 so that up to
100 of the Group’s executives participate.
Options for the 2000 accounting year were allotted in the spring of 2001.
The total number of options allotted was 793,140, of which executive board
members received 139,050. The strike price of the options was f ixed at
DKr152.89, equal to the average stock exchange price of Danske Bank
shares in May 2001 plus 10%. The number of share options allotted for the
2001 accounting year will be announced at the release of Danske Bank’s
f irst-quarter report for 2002.
At the end of 2001, directors and executive board members held a total of
88,207 Danske Bank shares (excluding options).
SHARE OPTIONS NumberMarket-
Executive Strike value*) Exerciseboard Others Total price (DKr m) period
Allotted in 2001 139,050 654,090 793,140 152.89 April 1, 2004-2008
Expired/cancelled 0 16,190 16,190 - -
Outstanding at end-2001 139,050 637,900 776,950 - 23 April 1, 2004-2008
*) Calculated according to the Black & Scholes formula
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 27
Management’s report
Human resources
The Danske Bank Group needs to constantly develop the skills of its staf f to
create value for its customers and shareholders.
In 2001, the Group spent 2.4% of the salary budget on staf f training and
development. A signif icant share of that amount related to merger activities
and IT systems conversion.
Although the conversion of IT systems in BG Bank and Fokus Bank tied up
considerable resources, the Group maintained a high level of activ ity in staf f
training. This was true of all types of training activity, including e-learning,
which enables employees to acquire new knowledge at their own pace, any-
where and anytime they want. Employees could choose from among almost
300 internal professional courses, and they spent 26,000 days on internal
training. These activities were supplemented by 3,300 external training
days.
The conversion in August of BG Bank’s IT systems to the Group’s central
systems platform was supported by an intensive training and development
programme for staf f in both of the Danish bank brands. More than 40,000
traditional sessions and a similar number of e-learning sessions were held
for this purpose. Systems conversion at Fokus Bank also required heavy
staf f training — in both Norway and Denmark.
The Group makes a diverse, targeted set of management development mod-
ules available to its management team. The programme enables individual
managers to quickly and ef fectively develop their skills within areas that are
particularly important to them. About a thousand managers attended inter-
nal management development courses in 2001. A large number of man-
agers and employees took top-level courses at leading business schools.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 29
Management’s report
The merger between Danske Bank and RealDanmark and the consequent
staf f reductions dominated general human resources activities in 2001. In
that connection, the Group created a job bank to support internal and exter-
nal job rotation. Moreover, it hired an external consultancy f irm that provid-
ed advice to employees who left the Group. Another signif icant activ ity in
the human resources area was the work to harmonise staf f policies across
the Group.
Again in 2001, the Group spent considerable resources on developing its
organisation, for instance, through teambuilding, work environment evalua-
tions and other internal surveys. In a survey conducted among Danske
Bank’s staf f, 90% of respondents said they were satisf ied or very satisf ied
with working in the Group, while less than 5% said they were dissatisf ied.
According to another survey, Danish economics students consider Danske
Bank by far the most attractive workplace in the f inancial sector.
Over the year, the Group and the staf f unions held talks on a Group-wide col-
lective wage agreement to replace the large number of agreements existing
in the merged businesses. The parties reached agreement just before the
New Year. The agreement will be put to a vote among the staf f at the end of
February 2002. If endorsed by employees, the collective wage agreement
will be launched in April 2002.
The Group expects to cut staf f ing levels further as it continues to adjust its
structure, although the pace of staf f reductions is expected to decline.
Nonetheless, the Group will recruit new employees to constantly optimise
the composition of its staf f and, not least, to ensure that it matches cus-
tomers’ requirements.
30 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Information technology
Information technology is at the heart of the Danske Bank Group’s activ ities.
It is especially important for the quality of services of fered to the Group’s
more than three million personal customers and just under 300,000 busi-
ness and corporate customers. IT plays a crucial role in developing prod-
ucts, launching new distribution channels, and automating work procedures.
The Group allocates considerable resources to IT and has spent a signif i-
cant amount on designing and extending its IT platform over the past ten
years. The platform is the strategic hub of v irtually all Danske Bank’s busi-
ness activities and, along with motivated and competent employees, is
among the most important progress drivers within the Group.
The cost of developing IT solutions accounts for a very signif icant share of
total costs in the f inancial industry, and IT gives scope for substantial
economies of scale. Hence, cost-ef fective IT use and development were
important driving forces behind the merger between Danske Bank and Real-
Danmark.
Central IT platform
The Danske Bank Group carries on activities on a variety of markets and
distributes its products through a number of physical and electronic sales
channels. These outlets are supported by the Group’s central IT platform,
which runs on a multi-currency principle and is in operation 24 hours a day
and 365 days a year.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 31
Management’s report
This enables Danske Bank to service customers ef fectively across business
areas, national borders and distribution channels – especially the 700,000
personal customers and 100,000 businesses in Denmark and abroad that
avail themselves of the Bank’s self-service systems.
To develop new products for its various distribution channels, the Group
needs to create only one basic system and can then develop new user inter-
faces on top of existing product systems. The central IT platform thus sup-
ports a development process with a high degree of component recycling and
reduced time to market for new products and services.
A well-integrated IT system gives the Group greater opportunities to quickly
meet customers’ demands for f inancial products and to target its marketing
ef forts. To this end, the Group launched an ambitious CRM (customer rela-
tionship management) development project in 2001.
Signif icantly, a central IT platform also ensures a high security level through
integrated authorisation and access controls, including digital security sig-
natures. Moreover, it enables ef fective internal control v ia integrated risk,
liquidity, position and limit management based on central, consolidated real-
time data.
32 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Operating cost sav ings
The central IT platform has enabled a number of the operating cost savings
and synergies Danske Bank has achieved by the acquisitions in previous
years of Östgöta Enskilda Bank in Sweden and Fokus Bank in Norway, and,
most recently, by the merger with the RealDanmark group.
Danske Bank expects to realise IT synergies and operating cost savings in
the region of one billion Danish kroner in 2002 as a result of the conversion
of BG Bank’s and Fokus Bank’s business systems to the central IT platform
in the autumn of 2001. The intention is to convert IT systems at Realkredit
Danmark; Danske Bank International, Luxembourg; and Danske Bank’s New
York Branch. This should bring further operating cost savings and improve
risk management.
The central IT platform has made it possible, in recent years, to centralise a
number of administrative procedures previously carried out by the branch
network and to streamline these procedures.
Customer f iles have been digitalised. This has increased ef f iciency for cus-
tomer advisers at the branch network and has helped to improve customer
service. Regardless of the contact point the customer chooses — whether a
branch or the call centre — all advisers in the Bank have access to the same
customer data.
The Group has outsourced the operation of its mainframe business systems
to DMdata, a partly-owned company that carries out similar activities for
other international groups.
34 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Organisation and management
The Danske Bank Group is managed on the basis of Danish management
practice and banking and other laws.
The board of directors appoints the executive board, which manages the
day-to-day af fairs of Danske Bank. It also approves the Group’s strategies
and discusses issues of principle with the executive management. More-
over, the board of directors ensures that the business risks the Group takes
on are justif iable, sets limits on the Group’s overall risk exposure and the
basis for controls, and oversees that these are observed.
The board of directors has established its own rules of procedure. The rules
of procedure, which the directors review every year, have been drawn up in
accordance with statutory provisions and the regulations of the Danish
Financial Supervisory Authority. They lay down guidelines for the board’s
work and specify the duties of the chairman and the vice chairmen.
Moreover, the rules of procedure address the powers of the executive board
and the interplay between the board of directors and the executive board.
Thus, the executive board must submit certain matters to the board of
directors for approval. This is true of loan applications of a specif ic size and
matters of an exceptional nature or of special importance. Additionally, the
rules of procedure require the executive board to report, on an ongoing basis,
to the board of directors on signif icant matters, including developments in
assets, liabilities and prof its, as well as the credit and market risk position
in relation to the policies and limits laid down by the board of directors.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 35
Management’s report
The division of duties within the executive board and the executive commit-
tee is also approved by the board of directors.
Board meetings are held once or twice a month according to a schedule
prepared for each calendar year. Once or twice a year, the directors hold
longer meetings to discuss Group strategy.
The board of directors has set up a number of committees that follow par-
ticular areas or prepare matters to be discussed later by the whole board.
The formation of the committees implies no change in the powers or respon-
sibilities of the board of directors or the executive board, nor in the legal
powers or responsibilities of other Group companies.
The advisory board advises the board of directors and helps Danske Bank to
forge links with its customers and establish business, cultural, political and
social relations with the Danish society at large. The advisory board con-
sists of at least 24 and not more than 50 members. They usually meet
twice a year upon the release of the annual and half-year reports. The deci-
sions of the advisory board are not binding on the board of directors, and
any proposals or recommendations made by the advisory board are consid-
ered independently by the board of directors.
36 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Composition of board of directors
The directors represent a broad range of business knowledge and experi-
ence. It is the board’s ambition to ensure that its composition always
ref lects the competence and professional experience needed to match the
complexity of Danske Bank’s activ ities. On their appointment to the board,
new directors are given an introduction to the Bank and the work of the
board. They are also of fered relevant supplementary training.
Upon the merger between Danske Bank and RealDanmark, the ten directors
elected by the annual general meeting of shareholders were supplemented
by f ive directors proposed by RealDanmark. Moreover, the f ive employee
directors of Danske Bank were supplemented by three employee directors
from RealDanmark for a transitional period until an election of employee
representatives was called. The board then consisted of 24 directors, 15 of
whom had been elected by the annual general meeting and eight by the
employees. One director had been appointed by the Minister of Economic
Af fairs.
The merger agreement included the objective of reducing the number of
directors within a few years.
At Danske Bank’s annual general meeting on March 27, 2001, Kjeld Kirk
Kristiansen and Palle Marcus left the board of directors, and Eivind Kolding
was elected to the board. At a subsequent meeting of the board of directors,
Poul J. Svanholm was re-elected chairman and Jørgen Nue Møller v ice
chairman of the board.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 37
Management’s report
Three employee directors – Jørgen Andersen, Per Alling Toubro and Solveig
Ørteby – who had been elected, according to the articles of association, to
serve until the calling of an election of employee representatives, left the
board when the election was called on January 29, 2002. They will attend
board meetings as observers until the coming annual general meeting.
After the annual general meeting on March 19, 2002, the board is expected
to consist of 22 directors, including 14 elected by the general meeting of
shareholders, seven employee representatives elected according to the gen-
eral rules on employee directors, and one director appointed by the Minister
of Economic Af fairs.
Directors elected by the general meeting of shareholders serve for four-
year-terms. However, at least two of these directors, chosen from among
those who have served on the board for the longest period since last being
elected, retire every year. The directors may of fer themselves for re-
election. They must leave the board not later than the f irst annual general
meeting after they have attained the age of 70.
Directors receive a f lat fee and are not encompassed by the Group’s incen-
tive programmes. The fee is DKr250,000 a year at present. The chairman
receives a triple fee and the vice chairman a double fee. A half fee is
received for board committee memberships. No director may receive a total
fee of more than twice the directors’ fee. The chairman and vice chairmen,
however, may receive up to four times the directors’ fee.
38 D A N S K E B A N K A N N U A L R E P O R T 2 0 01
Organisation
Upon the merger between Danske Bank and RealDanmark, the Group was
organised into six business areas, including a number of subsidiary com-
panies, supplemented by management support functions. To optimise
economies of scale and reduce the need for internal co-ordination across
business areas, the Bank launched a new organisation towards the end of
2001. An executive committee has been created and the activities of a
number of business areas are being gathered in country organisations. The
executive committee will co-ordinate the management activities of the Group.
In the new organisation, the business areas have responsibility for ensuring
that customers are of fered the best possible products, and they can
enhance their of fering by channelling f inancial products from external sup-
pliers to their customers. This gives the Group greater opportunities to con-
tinue to of fer customers the best f inancial solutions.
The new structure combines Retail Banking, a signif icant part of Wholesale
Banking, and a number of customer-oriented areas of Investment Manage-
ment. Banking activities are thus being amalgamated in each of the coun-
tries where Danske Bank operates.
Danske Capital is the Group’s asset management division and has responsi-
bility for portfolio management for private banking and institutional clients.
Danske Markets has retained global responsibility for the Group's trading in
f ixed income, foreign exchange and money market instruments.
Life Insurance and Mortgage Finance activities have not been af fected by
the organisational changes. Danica and Realkredit Danmark — like Danske
Capital — continue to market solutions directly to their own customers,
while also supplying a number of products to the Bank's customers.
D A N S K E B A N K A N N U A L R E P O R T 2 0 01 39
Management’s report
Danske Securities, which was converted into a Swedish-based subsidiary on
July 1, 2001, has not been af fected by the organisational changes either.
The new organisation simplif ies the Group’s executive board structure. In
future, the executive board will consist of at least two members instead of
the previous minimum of four members, provided this is approved by the
annual general meeting. When the organisational changes became ef fective
on November 15, the number of executive board members was reduced
from eight to four. After the annual general meeting, the executive board will
consist of Peter Straarup as chairman and Kjeld Jørgensen and Jakob Bro-
gaard as deputy chairmen. Sven Lystbæk will leave the executive board.
The new organisation of the Group, which was implemented at the beginning
of 2002, is shown in the chart on page 122.
2001 reporting
The 2001 f inancial reporting for the Danske Bank Group follows the organi-
sational structure that was in place at the beginning of 2001.
The merger reduced the Group’s risk prof ile, and the Group lowered the al-
location of capital to its business areas from 7.0% to 6.5% of their risk-
weighted items ef fective from 2001.
Comparative 2000 f igures in this Management’s report are unaudited, con-
solidated pro forma f igures for the Danske Bank and RealDanmark groups.
In the accounts (page 86 onwards), comparative 2000 f igures cover Danske
Bank’s operations only (see Accounting policies).
CORE EARNINGS BEFORE PROVISIONS (DKr m) 2001 2000*
Retail Banking 4,863 3,545
Mortgage Finance 2,321 1,475
Wholesale Banking 3,272 2,962
Danske Securities -312 242
Investment Management 1,046 1,140
Life and Pensions 1,039 778
Other -197 103
Group total 12,032 10,245
* Pro forma
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